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2,610 Word Individual Article from NBJ Issue December ‘99: Multi-Level Marketing III.. available for immediate DOWNLOAD!
Currency declines in Asia and a buoyant U.S. economy contribute to flattening MLM sales, but new entrants are undeterred and leaders diversify into the internet.
Multilevel marketing companies faced flattening sales in 1998-99, and those in the nutrition business were no exception. One of the oddities of multilevel marketing is that business is slowest when the economy is hottest: Prosperity puts a brake on the growth of an MLM company’s sales infrastructure because low unemployment means fewer potential distributors looking for supplemental income. However, just because MLM does best at recruiting during economic recession, this did not stop newcomer firms from entering the channel in droves, tempted not only by the promise of margins on dietary supplements but also by the shrinking cost of building technology platforms.
“In 1992-93 it cost half a million dollars minimum to give the MLM business a shot. Today you can set up a software and hardware platform for half that,” said Ed Hoyt, president of Infinity2 Inc. (Mesa, Ariz.). Doris Wood, president of the Multilevel Marketing International Assn. (MLMIA) and of The Wood International Group (Irvine, Calif.), estimated that an experienced person can now enter the industry for $xxx,000 to $xxx,000, including office, inventory and legal work.
Reliable statistics on the MLM industry are elusive. A relatively small percentage of MLM companies in the United States belong to professional associations, and the fast rate of entry and failure creates an oscillating target. There were approximately 1,xxx-1,xxx new entrants in MLM overall in 1998, many of them selling dietary supplements. The failure rate remains a painful xx%, according to Leonard Clements, president of MarketWave Inc. (Fresno, Calif.). In an even more sobering statistic, since World War II, xx,000 network marketing companies have been started but only 130 have made $xx million or more per year and were still in business five years after starting, according to research compiled and analyzed by Hoyt.
While new companies struggle just to make it to their first birthday, larger, established MLMs—led by Amway, Nu Skin, Shaklee, Herbalife and Nature’s Sunshine in the nutrition industry—faced their own challenges: How best to leverage the internet, diversify in a mature U.S. MLM market, sustain innovative product introductions, and cope with troubled economies and devalued currencies in Asia and other regions—where their highest percentage of sales now reside.
According to the Direct Selling Assn.’s (Washington D.C.) Growth and Outlook Survey, total MLM retail sales in the United States were up x.x% from $xx.xbillion in 1997 to $xx.x billion in 1998 (1991 sales were $xx billion). “The association’s 200 members account for the vast majority of sales,” said Joe Mariano, senior vice president of DSA. Eighty percent of DSA members are MLM companies, which generate xx% of dollar sales. The remainder are person-to-person sellers, such as Avon and Tupperware, which have no “downline” of distributors. An estimated xx% of retail sales are from “wellness” products and xx% from skin care. Global direct sales were $xx billion in 1998, down from $xx billion in 1997, due mostly to currency declines.
However, DSA figures are ...
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